Gaia Inc (GAIA) 2017 Q4 法說會逐字稿

Good afternoon, and thank you for participating in today's conference call to discuss Gaia, Inc.'s Financial Results for the Fourth Quarter and full year ended December 31, 2017. Joining us today our CEO, Jirka Rysavy; and CFO, Paul Tarell. Following some prepared remarks, we will open the call for your questions.

Before we get started, however, I'd like to take a minute to read the safe harbor language. The following constitutes the safe harbor statement under the Private Securities Litigation Reform Act of 1995. The matters discussed today include forward-looking statements that involve numerous assumptions risks and uncertainties, these include, but are not limited to, general business conditions, historical losses, competition, changing consumer preferences, subscriber costs and retention rates, acquisitions and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including our reports on Form 10-K and Form 10-Q. Gaia assumes no obligation to publicly update or revise any forward-looking statements.

With that, I would now like to turn the call over to Gaia's CEO, Jirka Rysavy. Please go ahead.

Thank you, Tiffany, and good afternoon, everyone.

So our first quarter results ended again ahead of our expectations. Paid subscribers grew 80% to 364,500 from 202,000 at end of 2016, which is achieving our growth rate and acceleration target, which was set up 18 months ago.

The subscriber growth rate increased sequentially 700 basis points from 73% at the end of third quarter and 2,800 basis point from 52% at the end of last year.

Revenue in the quarter increased 77% from the same quarter a year ago and the streaming revenue increased 94%.

Gross margin grew 50 basis points for the quarter to 86.2% and 260 basis points for the year.

We have again maintained our investment discipline and even with additional acceleration of our subscriber growth, we kept our loss below both our plan and the last previous quarter.

The -- our personalized experience for each subscriber and the increased sophistication of using organic marketing including increased leverage of search engine optimization contributed again to our over performance.

Our customer acquisition costs remained flat, which helped to reduce our net loss for another sequential quarter.

And with that, Paul will speak to you more about the quarter results. Paul?

Thanks, Jirka.

Jumping right into our results.

Streaming revenues in the fourth quarter increased 94% to $7.9 million compared to the year-ago quarter due to a continued strong subscriber growth Jirka just highlighted.

In 2017, streaming revenues increased 78% to $26.2 million.

Gross profit in the fourth quarter increased 78% to $7.3 million compared to $4.1 million in the year-ago quarter.

As Jirka mentioned, gross margin increased 50 basis points to 86.2% from 85.7% in the fourth quarter last year.

The increase in gross margin has continued to be driven by increased revenues and lower per-subscriber costs to deliver our service. Including lower streaming costs and higher leverage on our historical media library investments.

For these same reasons, full year 2017 gross profit increased 69% to $24.4 million and gross margin was up 260 basis points to 86.1%.

Total operating expenses in the fourth quarter were $13.4 million compared to $9.4 million in the year-ago quarter and $12.3 million last quarter.

This was ahead of our expectations due to increased efficiency in our customer acquisition efforts, particularly considering our accelerated sequential subscriber growth.

The year-over-year increase was due to the continued acceleration of subscriber growth rate during 2017.

On a full year basis, operating expenses increased to $49.5 million compared to $31 million in 2016.

Again, driven primarily by our increased spending on customer acquisition to drive our annual growth rate from 46% in the third quarter of 2016 to 80% in the fourth quarter of 2017.

Customer acquisition costs as a percentage of revenue declined to 87% in the fourth quarter of 2017 from 95% in the same year-ago quarter. Despite the dramatic increase in subscriber growth rate as previously mentioned.

It's important to reiterate that we include all marketing expenses in these numbers including the cost of launching our foreign language offerings.

We also would like to [expense] subscriber acquisition costs in the period incurred and despite the significant lifetime value do not record any value of our subscribers on the balance sheet.

Net loss from continuing operations in the fourth quarter was $5.6 million or $0.37 per share compared to a net loss from continuing operations of $3.4 million or $0.23 per share in the year-ago quarter.

In 2017, net loss from continuing operations was $23.7 million or $1.57 per share compared to a loss of $10.8 million or $0.54 per share in 2016, which reflected the $114.5 million gain on the sale of the Gaiam-branded business and the repurchase of approximately 40% of our outstanding common stock in July of 2016 at $7.75 a share.

On December 31, 2017, we had $32.8 million in cash, which included $12.5 million in borrowings under a line of credit that we put in place secured by the equity in our 12 acre, 150,000-square foot campus.

We have included the balance due on the line in current liabilities, although the contractual maturity is not until December 2020.

With that, I would now like to turn the call back over to Jirka for some additional remarks, after, which, we'll open the call for questions. Jirka?

The moment -- the momentum in our business has continued to strengthen as we accelerated subscriber growth while customer acquisition cost continued to track below plan.

During the quarter, we also grew our geographic footprint with subscribers now in over 170 countries.

We have [expanded] Gaia in Spanish, we launched Gaia in German and also recently in French.

Our subscriber count is now 3x higher than during the third quarter of 2015 when we operated profitably but we only were limited to 20% of revenue growth.

Well, as discussed, we have successfully achieved our first goal, which was set 18 months ago, to accelerate our subscriber growth to 80% by the end of 2017.

Our next goal, which was also set 18 months ago is to reach 1 million subscribers by end of the next year and to operate profitably thereafter.

And with that, I'd like to open the call for questions. Bethany, operator?

(Operator Instructions) Our first question will come from Mark Argento of Lake Street Capital Markets.

Just a couple of quick ones. First off, in terms of expectations for growth in 2018, I know you have a lot of control over the levers in terms of subscriber acquisition growth. Any initial thoughts on what you're thinking about for '18, relative to the 80% or whatever it ended up being for 2017?

I think for us, right now, we're going to focus to hit 1 million subscribers by end of the next year. So you can calculate that. We probably would tend to grow a little higher to start but generally, the goal is to hit 1 million members and optimize the quarters as we kind of -- the market allows.

And then in terms of the -- any updated kind of lifetime value or churn or kind of any trends anecdotally you can talk about in terms of your subscriber base?

We have -- we kind of said it in the call the acquisition cost continues to drop quarter-to-quarter. The lifetime value is growing, it's -- [almost] pretty consistently, which also for a company of this size you would expect that because as we have more mature people in the pool that will drive the value but if you look on our mature customer in a lifetime value, it's growing on its own. So you have both upsides. So the dynamics, the numbers, they're actually doing really well and as soon, we kind of get to our 1 million and we can kind of grow more in a profitable range, it will show very dramatically.

And then this is last one for me. I know in your prepared remarks, Paul you had mentioned you guys drew down on a line tethered to your real estate. What's the availability on that line? Maybe the terms of it?

That will be filed in the K tomorrow, we included the full agreement there but generally, it's $13.5 million that drops down every 6 months with the full balance due as I said end of December 2020.

We kind of drew on it so just make sure that line is in a place, to typically [due], it's not currently outstanding. So we just kind of put it in a place as now we can also obviously increase the line and or do sales lease back on headquarters as always planned.

And our next question will come from Peter Rabover with Artko Capital.

I just had a question, I feel like I ask this every quarter but I might, I keep getting confused. So you -- your SG&A was $12.168 and you state on your reporting that you had -- you said 80 -- your acquisition costs were 87% of revenues, so that's about $7.3. So I guess what I'm trying to figure out that balance, of that $5 million balance. What goes in that bucket?

You mean, like our salaries.

Yes.

Does that predominantly go into corporate...?

No. This is a good question because we do get it fairly often. So selling and operating includes all of the overhead, salary and overhead of our marketing team, our public relations team, our operations team, our merchandising team, our customer support team. So today, we have about 130-ish employees and I'd say the majority of those employees end up in that line. When you look at the corporate line that really just covers Jirka and myself because we do operate very lightly from a corporate-infrastructure perspective. So that's the majority of that, the remainder of that line.

Also in that percentage, 87% and stuff, there is a pretty big high chunk because -- for the languages because as we did, especially right now German and French again, we all hit the marketing expenses. We don't have those subscribers yet but we expense all of that in that line because by accounting for a media company, if you change the existing titles to the other languages, you take a P&L hit upfront and we take it in the marketing line.

That was actually -- I think that's what I was driving that. So that 87% includes the launch of the foreign languages stuff, is that what you're saying?

Yes.

So the other line that you have mentioned with the salaries, that 5, 5-ish line, that's pretty steady. That shouldn't fluctuate? But the $7.3 would be actually going down, going forward because you included things that aren't actually customer acquisition costs in there? Is that the way to think about that?

Yes. With 1 probably point of caveat. I don't know if it's going down, because if we continue to drive at the higher growth rates, that we're talking about the absolute number of dollars that we have to spend continues to grow, even as a percentage of revenue declines. Right?

Right, right.

So, I guess that's the one you're talking about.

It'll incline as a percentage of revenue but -- it's -- there is -- basically if you kind of look the leverage on company on cost of people. So if we kind of look at it at like $20 million if we grow revenue 10x, our cost of employment will go, grow less than 1x. So leverage-able. You have, probably 11x, 12x leverage, so that would still make the other expenses will grow but very lightly compared to other -- compared to revenue.

That's great I...

We probably get to like $1 million per employee, which is more like Google or Facebook numbers.

Great. maybe like a little backward question. I think you guys have talked about this number in the past and I just want to make sure if that's true. So what would your growth be this last quarter if you just decided to be like a breakeven business? Whether it's going to be around 20%, I think you had mentioned?

That was in 2015. It will be more today.

We don't -- we haven't looked at that number specifically because we are focused on hitting that. We are focused on hitting the 80,000 but every 100,000 incremental subscribers we add raises that number meaningfully. We're obviously staffed to support 80% growth. So I don't have the exact number for you but it is higher than 20% today.

It probably -- the kind of -- we've kind of say big picture because there's other things happening what we're launching but if you kind of say, as this 1 million sub, we can probably grow 40% profitably.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Rysavy for closing remarks.

Thank you, Bethany, and thank everyone for joining. And we look forward to speaking with you when we report our next quarter in early May.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.